Northern, WI 2/14/2013 (BasicsMedia) — US Airways (NYSE:LCC) and American Airlines (AAMRQ) have announced they are merging forces to become the world’s largest airline operator and realloy since the 911 attacks airlines always get bailed out by Uncle Sam, hence Uncel Sam Airlines Inc !!! It’s really To Big to Fail in US transportation similar to banks.

The new entity will retain the American name; be based in Dallas-Fort Worth, Texas; boast a workforce of nearly 100,000 and have a repertoire of 1,000 jets in its fleet. The deal, which has been in the works for at least a year, values the new airline at $11 billion.

US Airways CEO Doug Parker will run the combined company as chief executive and AMR CEO Tom Horton will become nonexecutive board chairman until 2014. If the Justice Department and American’s bankruptcy judge in New York sign off on the merger, the new carrier would be 2% bigger in terms of air traffic (as measured by the number of miles flown by paying passengers worldwide) versus the current No. 1 carrier United Continental Holdings (NYSE:UAL)

2013 – so far – has been the year of surprise for stocks, and a mentor of mine coined a phrase years ago saying – ”in stocks the train always leaves the station with the fewest passengers on board” – andin the case of 2013 stock performance he is absolutely right.

The other surprise is the airline sector leading all sectors higher. Since deregulation in 1978, we’ve seen a very difficult adjustment process for airlines that were designed to compete in a completely different environment. What’s more; since 1990, we’ve seen at least nineteen major airline bankruptcies; an astounding number when you consider the market. At the same time, we’ve also seen the emergence of the low-cost business model, originally ushered in by Southwest Airlines .

Of course, thirty-one years may seem like a long time for a market to be in flux, but consider the nature of the airline industry. Airlines’ two principal assets are their planes and their labor force. Airplanes are very long-term assets with average lifespans ranging from 20 years to 40 years. Even if deregulation began 31 years ago, most of the major legacy carriers still have airplanes in their fleet that predate 1978.

If the legacy carriers create issues for understanding long-term performance of the industry, we can at least look at the most successful post-deregulation era airlines to understand performance better. And what airline provides us with a better post-deregulation business model than Southwest!

Unfortunately, there’s no simple way to measure performance, either. We could look at return on assets, stock returns, free cash flows, earnings, and numerous other measures, but all are flawed for various reasons. The best measure that is available, in my view, is book value per share. Southwest has generally not had much in the way of goodwill or intangible assets on their balance sheet; nor do they suffer the problem of most of the major legacy carriers of carrying an astronomical debt load! So book value ends up being a reasonable (if slightly flawed) measure of growth; and looking at it on a per share basis allows us to ignore changes in share counts.

2013 has much more left to do, but expect to be surprised in 2013 as the year the stock market left the station with fewest passengers on board like my old boss used to tell me!!

Disclaimer: We have no position in any stock mentioned here.

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Steven Campbell began at Morgan Stanley (MS) and worked in the S&P 500 Futures Pit as a market maker from its inception, and was an original seat holder at the Chicago Mercantile Exchange (CME) in the 1980's. Steven was also President and founder of Chicago Arbitrage Group and a Portfolio Manager of multi billion dollar portfolios during the Internet boom in San Francisco for various Hedge Funds and Capital Market desks. Steven is a regularly syndicated writer who contributes financial content to multiple websites across the baby boomer demographic as a former trader and money manager. He resides in Northern, WI and is the happy fisherman you see on the local lakes when not at the computer.